Tuesday, December 07, 2010

Obama, GOP strike deal to extend tax cuts

Can it be true? Will Congress soon take care of some pressing tax legislation?

The president hopes so. He announced last night a deal struck by the bipartisan tax task force he appointed earlier this month that will temporarily extend all Bush-era tax cuts in exchange for continuation of unemployment benefits.

Although the deal is step forward, it's a baby step. More on this in a minute.

Tax breaks, estate tax included: The proposal would not only keep the current six income tax rates (starting at 10 percent and going to 35 percent) for the next two years, but also would extend several other popular tax breaks.

Some of these were part of the Bush programs, others were included in Obama's 2009 stimulus package.

They include the continuation of the $1,000 per child tax credit, enhanced Earned Income Tax Credit provisions and the American Opportunity Tax Credit that expanded federal tax assistance for college costs.

The estate tax would stay, too, despite hope by some that they might be able to keep it in its legislative grave.

But instead of returning on Jan. 1 as scheduled with a tax rate of 55 percent on estates of more than $1 million, the plan calls for it to apply a 35 percent rate to estates exceeding $5 million.

Making Work Pay outta here: Obama did, however, do some horse trading with regard to his signature tax break, the Making Work Pay credit.

It will expire as scheduled on Dec. 31. But for the next two years, workers will see a 2 percent cut in the payroll taxes taken out of they wages.

I suspect most of them will be very pleased with this exchange.

Making Work Pay was designed to offer some relief from the 6.2 percent payroll tax that workers pay on up to $106,800 in earnings to finance Social Security. Withholding tables were redone so that each worker, up to a certain income level, got a credit of up to $400 ($800 for joint filers).

But the whole thing was confusing. Worse, taxpayers had to fill out an extra form that added to the tax break chaos when they filed their returns.

The 2 percent cut in the payroll tax reduction will be much easier for workers. Nothing extra is required of employees. And it's estimated that it will save a household making $50,000 a year around $1,000 annually in payroll taxes.

Now we just wait for Congress to sign off on tax plan and the IRS to tweak the payroll tables and voila!

Will Congress go along? If only it were that simple. The compromise tax plan will not be popular among many on Capitol Hill. As the prez noted:

"I have no doubt that everyone will find something in this compromise that they don’t like. In fact, there are things in here that I don’t like …."

Both Republican and Democrat hardliners will call the plan a sellout instead of a compromise.

The plan probably will be an easier sell to the GOP. Keeping the top tax rate 35 percent, even temporarily, is a big win for those members since it was their party who set the expiration date.

But many Democrats, having failed last week to end tax cuts for wealthy taxpayers, are not happy to see their party's leader making nice with the opposition, regardless of the deal's benefits for lower-income taxpayers.

So the prez and VP Joe Biden, who has already been dispatched to Capitol Hill to assuage Democratic concerns, still have their work cut out for them.

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I am still not comfortable with this being called 'tax cuts' or an extension of cuts. Taxes are at a certain level right now. The government has decided not to raise taxes. I know that it sounds nicer for them to use 'tax cuts' in their speeches but let us be realistic, they wanted to raise taxes but are not doing so at this time.

Weekly Tax Tip

Back-to-school tax holidays are back -- It's a late summer perennial, states offering shoppers special days to buy tax-free clothing, computers and classroom supplies. This year 17, and maybe 18 soon, will hold the sales tax holiday weekends or longer. The events save families a few bucks if they follow all the rules. (July 29, 2015)

You also can get a refresher of the Daily Tax Tips posted earlier this year on their respective filing season monthly pages: January, February, March and April.

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Counting Down to Tax Day

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Time for Tax Tasks

July 1: This is the day on which many states' new laws take effect. This year, gasoline taxes are getting a lot of attention. While federal lawmakers refuse to hike the excise tax that Uncle Sam collects on fuel, some state lawmakers are not nearly so reluctant. Seven states increased their gas and/or diesel excise taxes today. They are California, Georgia, Idaho, Maryland, Nebraska, Rhode Island and Vermont.

July 4: Happy 239th Birthday, America! Most of us will never be totally independent of taxes, but we can celebrate fewer tax hassles.

A tax professional can help you get your tax life in shape, whether it's taking steps to lower your 2015 bill or file that 2014 return that's due by the extended Oct. 15 deadline.

July 10: Do you get tips as part of your job? If so and you received gratuities totally $20 or more in June, use Form 4070 to report them today to your employer.

July 14: The 2015 Atlantic/Gulf of Mexico hurricane season has been relatively tame, with just two named storms (Ana and Bill) so far. But we can't get complacent. Hurricane season, being ticked off on the countdown clock below, can ramp up quickly and will officially continue through Nov. 30.

To prepare for a tropical storm's landfall or the associated rain, flooding and tornadoes that accompany them, check out the ol' blog's special Natural Disasters Resources page. It has physical and financial preparation tips.

July 17: Ah, summertime and the living is easy … as long as you have a great day camp where you can send your kids. Working parents can use the day camp's costs to help claim the child and dependent care credit.

July 21: For older youngsters, getting a summer job is a rite of passage. It's a great way for them to earn some spending money -- or sock away a bit for coming college costs --- and learn life-long financial responsibility lessons. They'll also get schooled on the role of taxes taken out of their paychecks.

July 24: In addition to putting some summer job earnings toward college savings, your young employee can start building a retirement nest egg by opening a Roth IRA.

July 31: Now that we're into the last half of 2015, it's a good time to make some midyear tax moves that can help reduce your coming tax bill, such as evaluating your portfolio for losing stocks that can offset any gains and making deductible donations to your favorite charity.

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I am a professional journalist who has been covering tax issues since 1999. I am not a professional tax preparer. The content on Don't Mess With Taxes is my personal opinion based on my study and understanding of tax laws, policies and regulations. It’s provided for your private, noncommercial, educational and informational purposes only. It’s not a recommendation of any specific tax action(s) you should take. Similarly, mentions of products or services are not endorsements. In other words, my ramblings on the ol' blog are free advice and you know what they say about getting what you pay for. That's why when it comes to filing your taxes, I urge you to get additional, professional, paid-for guidance from an accountant, Enrolled Agent or other qualified tax professional who is familiar with your individual tax circumstances.

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